"Unsatisfying," "troubling," and even "alarmed" were some of the words that …

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Federal Communications Commissioner Mignon Clyburn looks like someone who enjoys the holiday cheer, but she isn't sharing any of it with Verizon Wireless this week. Instead, Verizon got a somber warning from her in response to its explanation for the telco's new $350 early termination fees.

The company's answers were "unsatisfying and, in some cases, troubling," Clyburn disclosed on Wednesday—except for the responses that "alarmed" her. As we've reported, on Friday Verizon replied to an FCC letter of inquiry asking why the company had boosted its ETFs—the fee you pay if you quit a mobile plan before the contract expires—from $175 to $350 for various smart phones like the BlackBerry and Palm Centro. The firm argued that the jumbo sized fees subsidize the cost of the newer handsets, as well as the higher advertising and customer support expenses associated with them.

Clyburn is clearly not impressed with this logic. "I am concerned about what appears to be a shifting and tenuous rationale for ETFs," she wrote. "No longer is the claim that ETFs are tied solely to the true cost of the wireless device; rather, they are now also used foot the bill for 'advertising costs, commissions for sales personnel, and store costs'."

But what really seems to have gotten her attention is Verizon's Mobile Web browser, for which the firm charges a usage fee. Verizon's statement insisted that consumers won't get inadvertently dinged for going to the service if they don't stray past its home page. Clyburn warned that she was "alarmed by the fact that many consumers have been charged phantom fees for inadvertently pressing a key on their phones thereby launching Verizon Wireless's mobile Internet service."

The bottom line, as far as Clyburn is concerned: "Wireless companies can truly earn their desired long-term commitments from consumers by focusing primarily on developing innovative products, maintaining affordable prices, and providing excellent customer service." Her letter concluded with a promise that can't be making Verizon execs smile: "I look forward to exploring this issue in greater depth with my colleagues in the New Year."

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Matthew Lasar
Matt writes for Ars Technica about media/technology history, intellectual property, the FCC, or the Internet in general. He teaches United States history and politics at the University of California at Santa Cruz. Emailmatthew.lasar@arstechnica.com//Twitter@matthewlasar

Clyburn is clearly not impressed with this logic. "I am concerned about what appears to be a shifting and tenuous rationale for ETFs," she wrote. "No longer is the claim that ETFs are tied solely to the true cost of the wireless device; rather, they are now also used foot the bill for 'advertising costs, commissions for sales personnel, and store costs'."

Its quite illuminating just how uncompetitive the market it. The companies are posting millions in profit, improving service at a snail's pace and offloading operation costs on consumers. Up north (Canada)its even worse, you can get hit with a $400 termination fee.

Clyburn is clearly not impressed with this logic. "I am concerned about what appears to be a shifting and tenuous rationale for ETFs," she wrote. "No longer is the claim that ETFs are tied solely to the true cost of the wireless device; rather, they are now also used foot the bill for 'advertising costs, commissions for sales personnel, and store costs'."

Wow, who knew they had to pay for that?!?

This comment was edited by pizan on December 24, 2009 15:34

That's what the monthly fee is for. ETF's should only be for subsidizing the phone. Going further ETF's should also be prorated. If I cancel my contract after using it for 75% of the term agreement, I should only owe 25% of the cost of the mobile device. Of course this wouldn't really be an issue if the mobile networks were truly open and one could simply purchase any mobile device they wanted then choose the carrier that offers them the best cost for service required.

As long as the wireless market is non-free and non-open, we'll need to keep carriers on a tight leash lest they run amok with ridiculous charges like the ETF. They're obviously going to try every trick they can think of to boost their profits, but since there is a distinct lack of meaningful competition in the industry, everything they try to charge us for should be scrutinized.

Originally posted by 3power:hmmm . . so if you sign a contract and then break it you are penalized. Seems like normal business to me. The ETF should be set high enough to discourage folks from breaking their contracts on a whim.

It's not remotely that simple. For example, if I buy an iPhone from AT&T and they later decide to change the contract terms, I'm given a "take it or leave it" option at that point. I either end up with a phone that's useless, or I have to continue my contract under their new terms. That's not remotely fair to the consumer. If the market were truly open and I could take that phone and activate it with another carrier, then I wouldn't have a problem with it.

Everyone needs to quit trying to think in free market terms when this market is anything but free.

Just because they think they can write anything they like into a contract doesn't make it enforceable, and certainly doesn't mean that the FCC can't smack them down for making ridiculously one-sided contracts in an industry like this.

It's not a marriage, it's a goddamn cellphone contract and the gravity with which telcos treat their clients in contracts such as this just have a chilling effect on the market. I don't have nearly the amount of hassle dealing with any other subscription or monthly based services as I do with telecommunications.

Why?

Why is this? They've been given far too much freedom to screw the consumer - and as I have already said multiple times, when you give someone freedom to sit on top of an infrastructure and reel in cash for its use, there is seldom (if any) will to improve and develop that infrastructure.

It's not just Verizon that needs a competitive kick up the backside - the same could be said of almost every telecoms business on the North American continent.

Originally posted by 3power:hmmm . . so if you sign a contract and then break it you are penalized. Seems like normal business to me. The ETF should be set high enough to discourage folks from breaking their contracts on a whim.

The ETF should be set high enough to recoup the carrier's outlay on the hardware plus a reasonable return on their loan. They aren't entitled to be paid for you electing to no longer do business with them.

It's not remotely that simple. For example, if I buy an iPhone from AT&T and they later decide to change the contract terms, I'm given a "take it or leave it" option at that point. I either end up with a phone that's useless, or I have to continue my contract under their new terms.

Has this happened to you before? What type of change to your contract terms would encourage you to leave your carrier? You won't see a price increase in the middle of your contract. So I am curious.

Do you guys believe an ETF price "ceiling" should apply to other businesses as well? Try breaking a contract in other areas of your life and you will see that just about every one of these penalties seems "unfair" at the time. But remember, you agree to the terms when you sign.

lol yes it does. I'm only in the office for a few hours, though. Incidentally, I've been a long time lurker of Ars but never felt like I had to post anything. However, the recent threads on ETFs just got me to shaking my head at the entitlement attitude that has become so prevalent in people these days.

Let's hope they also look at the "final bill" given to most customers who let their contracts expire or term early given they include the full bill _despite_ being charged one month in advance during sign up.

Clyburn is clearly not impressed with this logic. "I am concerned about what appears to be a shifting and tenuous rationale for ETFs," she wrote. "No longer is the claim that ETFs are tied solely to the true cost of the wireless device; rather, they are now also used foot the bill for 'advertising costs, commissions for sales personnel, and store costs'."

Originally posted by 3power:hmmm . . so if you sign a contract and then break it you are penalized. Seems like normal business to me. The ETF should be set high enough to discourage folks from breaking their contracts on a whim.

Hmmm so if Verizon wants to do business and then change the rules they are penalized. Seems like normal business to me.

The FCC should be the one to represent the collective bargaining position of all customers. If you or Verizon don't like it, get the fuck out of the market.

Originally posted by 3power:However, the recent threads on ETFs just got me to shaking my head at the entitlement attitude that has become so prevalent in people these days.

In any other industry I'd agree with you. Not in telecom. If there was actually a competitive market where you could take your business and hardware you might have a point, however...

As was mentioned, you either accept the terms of the carrier's changes or you're stuffed. You can take your business elsewhere, but you can't take your subsidized hardware because they won't unlock it. An ETF that doesn't reflect the carrier's remaining financial interest in the hardware just adds insult to injury.

It's not a false sense of entitlement to object to paying more than fair market value for a product that they won't actually give you once you've paid them.

I see no problem with the FCC forcing the telcos to define exactly what they're charging for.

Originally posted by 3power:hmmm . . so if you sign a contract and then break it you are penalized. Seems like normal business to me. The ETF should be set high enough to discourage folks from breaking their contracts on a whim.

Hmmm so if Verizon wants to do business and then change the rules they are penalized. Seems like normal business to me.

The FCC should be the one to represent the collective bargaining position of all customers. If you or Verizon don't like it, get the fuck out of the market.

Sounds to me like you want the pros of a contract (cheap phone), but don't want to be held accountable for your end. Exactly what I meant by entitlement. There are other options for you as a consumer, you don't have to enter the agreement.

Look what happens when you break a car lease - you are subject to an ETF PLUS all of the remaining monthly payments. And . . you don't even get to keep the car. :-)

In any other industry I'd agree with you. Not in telecom. If there was actually a competitive market where you could take your business and hardware you might have a point, however...

Actually, the wireless market is incredibly competitive. Just look at the price and equipment wars that are going on right now. This all benefits the consumer. You absolutely can buy your own phone and not enter into a contract, but then you would have to buy the phone at its MSRP, which most folks don't want to do. Basically, people want the phones to be cheaper so that they can get the latest and greatest at dirt cheap prices without having to enter into a contract. Again, compare this to any other business's product and tell me if you feel the same way.

Originally posted by Jon Ghast:"Has this happened to you before? What type of change to your contract terms would encourage you to leave your carrier? You won't see a price increase in the middle of your contract. So I am curious."

HorseShit, I'm with ATT, both the price of texts and the the price for data changed during my last contract. I had the option of paying the EFT, or paying the new prices.

Care to try again.

Yes I do. That is called a "materially adverse change" to a contract, and as such you have the option of electing to terminate the contract WITH NO ETF. It's useful as a hammer on all wireless companies; I've used it to get out of my contract with Sprint with great success. Consumerist discusses it frequently, and I've noticed that these types of changes have been slowing in their pace recently, perhaps because people are starting to realize that contract law tips this sort of thing in the favor of the consumer?

HorseShit, I'm with ATT, both the price of texts and the the price for data changed during my last contract. I had the option of paying the EFT, or paying the new prices.

Care to try again.

Would like to see that contract you signed. I've had a cell since 1996 and my prices have never gone up mid-contract. I can't imagine that you couldn't have gotten out of that contract and not incurred an ETF.

"Would like to see that contract you signed. I've had a cell since 1996 and my prices have never gone up mid-contract. I can't imagine that you couldn't have gotten out of that contract and not incurred an ETF."

I probably could have, but they were making it a pain in the ass. One of the retention dept. staffers even told me they'd charge it regardless, and I'd have to get it back from my CC company.

Originally posted by 3power:Actually, the wireless market is incredibly competitive.

You understand that just saying it's competitive doesn't make it so, don't you? When all the carriers raise prices on SMS in lockstep, that's not competitive.

quote:

You absolutely can buy your own phone and not enter into a contract, but then you would have to buy the phone at its MSRP, which most folks don't want to do.

Of course they don't. You still can't buy a phone that you can use elsewhere, so why should I pay full purchase price to lease Verizon hardware? If I pay the same for service as the subsidized customer, I'm effectively paying for a subsidy I'm not receiving too. How is that a sound financial choice? How is this a hallmark of a competitive marketplace?

quote:

Basically, people want the phones to be cheaper so that they can get the latest and greatest at dirt cheap prices without having to enter into a contract.

Actually people see that they have to repay the subsidy whether they get the phone or not, so it makes no sense to not take it. Barring any extreme extenuating circumstances, like knowing you're leaving the country / service area before the contract term matures, you have no choice as a rational economic actor.

quote:

Again, compare this to any other business's product and tell me if you feel the same way.

And again, this isn't any other business. Other industries don't have the same barriers to entry or mandated oligopolies. The FCC has a obligation to limit the abuses of an industry that cannot function as a competitive market.

Yes I do. That is called a "materially adverse change" to a contract, and as such you have the option of electing to terminate the contract WITH NO ETF. It's useful as a hammer on all wireless companies; I've used it to get out of my contract with Sprint with great success. Consumerist discusses it frequently, and I've noticed that these types of changes have been slowing in their pace recently, perhaps because people are starting to realize that contract law tips this sort of thing in the favor of the consumer?

Yeah I was half hoping that ATT would change their data policies so I'd have an excuse to jump ship to T-mob and get the HD2 or one of the other Snapdragon superphones that ATT keeps passing on in favor of that other phone. Oh well, I factored the ETF into the cost of my current handset when I bought it.

The problem with this whole "pay MSRP if you don't want a contract" is that the MSRP prices are bogus. If the carriers had to sell the phones regularly at those prices, they wouldn't be nearly so high. It's because they "compete" at the prices with two-year contracts that there's really no pressure to lower these inflated MSRPs. Meanwhile they can point to them and say "You have another option if you don't want a contract & ETF, just buy the phone outright at full price" - while keeping that option very undesirable. And remember, that $500 phone you just bought so you can switch carriers at will won't work with just any other carrier so your options to switch are still limited.

Analogies with other business models can be sketchy, because most other products you buy aren't beholden to the manufacturer's service to be useful. If you buy a BMW, you don't have to take it to a BMW dealership to be serviced if you don't like their prices.

Any time there is a service which will incur an extra fee that fact should be very clear at the time you initiate the service. Simply being in the fine print of the agreement is not enough. You should be warned every time. I incurred surprise fees several times on my old cell phone simply by clicking around the interface.

Also, there should be a way to disable these services permanently. It drives me crazy that some providers charge an extra fee for incoming text messages and then they don't provide any way to turn off the ability to receive those messages. At least with phone calls you can decline the call and resulting connection charges simply by not answering.

I was able to get T-Mobile to cancel my contract on three phones without an early termination fee. I think that the crucial thing was my demand that they show me in writing where I had agreed to that early termination fee. I don't remember signing anything to that effect, or even necessarily verbally agreeing to the fee, so I doubt they was any actual proof on the books.

It might also have been some kindness on the part of the operator I was talking to since cell phone coverage at my house was so lousy and I had followed proper procedures in issuing formal complaints about it over the course of about a year. And, it may have been the several hundred contacts I had with their customer service department over the course of a couple months. Hard to be sure.

And remember, that $500 phone you just bought so you can switch carriers at will won't work with just any other carrier so your options to switch are still limited.

And the best part is that there is absolutely no good f*cking reason why this is the case. Every single modern CDMA phone has a hidden menu to allow for reprogramming. The only reason CDMA phones are not as portable as GSM phones is because the carriers are dicks and refuse to activate other carrier's hardware. I'd be VERY pleased to see an FCC rule mandating that they can't refuse to activate otherwise compatible hardware.

Clyburn is clearly not impressed with this logic. "I am concerned about what appears to be a shifting and tenuous rationale for ETFs," she wrote. "No longer is the claim that ETFs are tied solely to the true cost of the wireless device; rather, they are now also used foot the bill for 'advertising costs, commissions for sales personnel, and store costs'."

Wow, who knew they had to pay for that?!?

This comment was edited by pizan on December 24, 2009 15:34

That is THEIR choice to pay for those items, not mine.

Why, don't you like the ads, their stores and their salespeople? I'm sure 3power will step up and suggest that we should pay for their christmas bonus and retirement too.

Clyburn is clearly not impressed with this logic. "I am concerned about what appears to be a shifting and tenuous rationale for ETFs," she wrote. "No longer is the claim that ETFs are tied solely to the true cost of the wireless device; rather, they are now also used foot the bill for 'advertising costs, commissions for sales personnel, and store costs'."

Wow, who knew they had to pay for that?!?

This comment was edited by pizan on December 24, 2009 15:34

That is THEIR choice to pay for those items, not mine.

Why, don't you like the ads, their stores and their salespeople? I'm sure 3power will step up and suggest that we should pay for their christmas bonus and retirement too.

Originally posted by Jon Ghast:I kinda think 3power realized that Ars readers know what they're talking about and took his astroturf elsewhere.

I like that - "astroturf" lol

I'm still having trouble getting past some points. I think once answered, some of this will be clearer to me.

(1) Why would you want to break your contract? Again, you agree to a price for a certain amount of service per month. I don't think the carriers are going to change their end of the agreement in this respect. My thought is that most who switch just want a newer device and are upset that they are in a contract that they agreed to in the first place. I think most here would agree with that.

(2) The ETF is not a fee that you are charged unless you break the contract. All of this talk about other issues that folks are mad about - such as MSRPs that are too high, prices in lockstep, etc - may be legitimate. But, I think they are deflecting from the topic at hand. You will not incur an ETF unless YOU decide to break the contract. Which leads me back to question 1. And people actually want government regulation to help them break their contract - their binding agreement - without incurring the penalty.